Chat with AI
Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884 Exercise 34
How Banks Create Money
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $1,200 billion.
a. How much do the banks lend in the first round of the money creation process?
b. How much of the initial amount lent flows back to the banking system as new deposits
c. How much of the initial amount lent does not return to the banks but is held as currency
d. Why does a second round of lending occur
Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $1,200 billion.
a. How much do the banks lend in the first round of the money creation process?
b. How much of the initial amount lent flows back to the banking system as new deposits
c. How much of the initial amount lent does not return to the banks but is held as currency
d. Why does a second round of lending occur
Explanation
Verified
Verified
(a) In the first round of the money crea...
Macroeconomics 11th Edition by Michael Parkin
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
